First and foremost you need to understand the peculiarity of the case and the likely contentions of the parties.
1) Preliminary issue is whether the property acquired by your grand father is ancestral or self acquired given that the HUF property belonging to great grand father has been acquired by the government for construction of dam and compensation has been received.
2) Technically any property obtained with the nucleus / seed capital of ancestral property is considered ancestral property. So in your case, your side of argument will be that the property obtained by your grand father is ancestral property as the nucleus/seed capital was from compensation paid by government whilst acquiring ancestral land.
3) Whereas the case of your aunt will be that since the HUF property obtained by your great grand father is no longer physically in existence, the compensation received by your grand father is in his individual capacity and as such the property obtained by your grand father is his self acquired property.
4) Supporting your aunt's claim would be the fact that once the property is received through any other mode, except through succession and that the acquisition of property held by great grand father is an acquisition by operation of law and hence no longer ancestral and subsequently the property purchased by grand father through compensation is self acquired and that the daughter's are entitled to share of property.
5) However the advantage to your side will be that there was a partition in the year 1994 and the said partition has not been challenged despite passage of 24 years, law of limitation will kick in and thereby preventing your aunt's from instituting the case.
6) So in the event of your aunt choosing to file the case against the sale , you should prima facie be able to prove to the court, the following
a) The compensation derived from ancestral property was fully utilised by your grand father to purchase 10 acres of agricultural property and that your grand father had no other income to purchase the 10 acres of land and
b) that the property remained undivided from the date of purchase till 1978 and notional partition on account of demise of grand father arose in 1978 and
c) Sisters were married prior to 1989 and karnataka hindu succession amendment act 1994 is not applicable to the said case as grand father died in the year 1978 and also that Hindu succession amendment act 2005 is not applicable in the present case and
d) Physical partition by metes and bounds was done amongst the grand mother and 6 sons vide 1994 partition and
e) Grand mother too had expressed her consent/WILL to part with her share of property to 2 sons after her life time . However adequate care will need to be taken to see the wordings of allotment of share to grand mother in partition deed to examine whether the share allotted to grand mother is
ee1) limited in estate
ee2) is it absolute right conferred on her.
please note that if it is an absolute right conferred on grand mother, then in absence of will, her share will vest with the sons and daughter's in equal share's.
Hope this information is useful.